A Sleeping Giant with One Eye OpenHelen Sanders, Editor, TMIThe increasing opportunities presented by digitisation, alongside the resilience of treasurers, are allowing companies in Africa to build business models that will not only withstand current problems but also emerge better-equipped to pursue further growth.

A Sleeping Giant with One Eye Open

by Helen Sanders, Editor

For the past decade, Africa has been feted as a nascent economic powerhouse whose wealth of natural resources, infrastructure investment, increasing productivity and growing international trade offered enormous attractions for foreign investors. Across a very short time, however, governments of commodity-reliant countries have been forced into crisis management mode, battling against headwinds that are battering their currencies and economies.

The battle for African economies

While foreign investment has declined, however, particularly from China, and some infrastructure projects put on hold, few corporations are turning their backs on Africa. In particular, they recognise that while the short term may be difficult, and therefore growth expectations need to be revised, the attractions that first drew them to the continent continue to exist. Peter Crawley, Head of Treasury & Trade Solutions, Sub- Saharan Africa, Citi outlines,

“Africa has been dealt a difficult hand with a combination of commodity price pressure and China’s economic slowdown. Together, these factors have resulted in a fall in the rate of growth, together with the effects of currency devaluation, constraints on the availability of foreign currency and heightened counterparty risk following the recent collapse of several banks, such as in Kenya. Even so, growth remains higher than in many economies around the world. Overall, growth rates of 6-7% have fallen to 3-4%, but inevitably, this is not consistent across countries or industries. Looking at Nigeria and South Africa, which together account for more than 50% of GDP, Nigeria has been heavily hit by falling oil prices, while in South Africa, the economy continues growth, albeit slowly and in ‘pockets’. Conversely, countries such as Tanzania are beneficiaries of lower oil prices with the resulting resilience to growth rate declines.”

Inevitably, while some companies (as well as countries) will benefit from lower commodity prices, the impact of the collapse in the price of many key commodities cannot be underestimated. As Philip Panaino, Regional Head, Transaction Banking, Africa, Standard Chartered emphasises,

“With 36 of the 48 countries in sub-Saharan Africa (representing around 80% of the population and 70% of GDP) reliant on exports of one or more commodities, and therefore suffering the effects of the economic headwinds, there are few companies that do business in Africa that are not having to adapt their operations.”

Furthermore, the economic and regulatory situation remains challenging for all organisations, particularly as a result of currency devaluation, foreign currency and liquidity constraints and a fast-changing regulatory environment as governments implement measures to protect their economies. Philip Panaino, Standard Chartered continues,

“Realistically, current market challenges are forcing all companies to boost their efficiency irrespective of where they are headquartered, and whether the impact of depressed commodity prices has a positive or negative effect on the business. All companies face liquidity, FX and regulatory challenges, and the difficulties associated with lower GDP growth.”

Emerging regional champions

These difficulties are inevitably not restricted to foreign corporations, but also affect African companies expanding across the continent. Peter Crawley, Citi explains,

“Foreign multinationals operating in Africa are focusing increasingly on managing risk, and have recalibrated their growth expectations. Companies headquartered in Africa that have experienced considerable growth over recent years are now seeking out growth opportunities and dealing with slower growth rates. In South Africa, for example, where growth was 2-3%, this is now less than1%, with price increases also coming through, creating a particularly challenging business environment for companies that operate largely within the continent.”

However, as Philip Panaino, Standard Chartered suggests, more challenging trading conditions are prompting regional corporations to pursue comparable levels of treasury efficiency as their foreign peers,

“The gap between foreign multinationals and regional champions is narrowing as larger African companies adopt more efficient processes and technology. As employees move between organisations, there is greater cross-pollination of ideas and expertise on maximising efficiency and reducing costs.”